Question
In: Finance
You are considering the purchase of a $1 comma 000 par value bond with a coupon rate of 5 %
Solutions
Expert Solution
Bond valuation means determining the fair price of the bond by taking the use of coupon rate, YTM, redemption amount, etc.
The fair price of the bond is compared to the actual price of the bond to determine whether the bond is undervalued or overvalued. For investors, if the bond is undervalued it is wise to make the investment.
Computation of the APVF (Annuity present value factor) & PVF (Present value factor)
The APVF and the PVF are computed by applying the formula where r means the YTM i.e., 4.5% (9/2, semi-annual payments), and n means the number of periods i.e., 24 periods (12 years*2). The value of the APVF and the PVF will be used in the calculation of the bond price.
Computation of the bond price
Bond price is $710.10.
Bond price is $710.10.
Junaid answered 2 years agoRelated Solutions
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A $ 5 comma 000 bond with a coupon rate of 6.6% paid
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